Broad-based policy to revamp society to the core
Shared Prosperity Vision aims for more equitable distribution of income for Malaysians
THE pursuit of just the headline economic growth number will change in favour of an inclusive development plan aims to lead to a broader and more equitable distribution of income for Malaysians.
A broad-based policy called Shared Prosperity Vision, which is to be unveiled on Oct 5 and will see the government undertake a new development strategy through a 10-year plan starting from 2021 that aims to restructure Malaysian society at its core.
Gone will be the chase for just higher income numbers. The idea will be to ensure that income generated in the country is spread equally and fairly among all races.
“It is time for a needs-based strategy instead of a race-based one,” says Alliance Bank Malaysia Bhd chief economist Manokaran Mottain.
The needs-based strategy looks to narrow the gap in income between the races and regions in the country.
There are eight pillars in the broad strategy and one of the pillars looks towards the diversification of the economy.
There are already suggestions that the new areas of focus will be on increasing the involvement of businesses and investments into higher value-added sectors. That will ensure the adoption of higher skills and ultimately better productivity and incomes for workers.
The issue has been the low adoption of technology in the manufacturing and services sectors.
Data shows that the usage of high technology in the manufacturing and services sectors is low at 37% and 20% respectively.
Higher skilled jobs that will look to lift the wage to gross domestic product (GDP) levels of workers are being pursued.
“For now, the focus is on growth targeting. However, a key success factor in achieving shared prosperity is the need to create sufficient jobs ie quality jobs that can deliver higher income,” says Ambank Group chief economist Anthony Dass.
“Therefore, there needs to be a pronounced shift in policy focus that now overly emphasises on GDP growth to one that emphasises on employment creation of quality jobs.
“This would mean we need the policies and directives at all levels to have a key central focus on job creation ie quality jobs for locals. In this respect, we need clear targets, credible statistics and close monitoring over the number of job creation, just as we have on GDP, value added, gross development value,” he says.
Right now, the wage to GDP ratio for Malaysia is just below 36%, a rate that has been going slowly over the past few years. It was 31.7% in 2010 and 35.5% in 2017.
“Malaysia’s labour share of income still lagging behind most advanced economies, ranging between 44.8% (Singapore) and 56.5% for the UK,” says Socio-economic Research Centre executive director Lee Heng Guie.
“The areas of focus for B40 households are easing the pressure of rising cost of living, affordable housing, health care system and social protection such as pension scheme and adequate retirement savings.
“To deal with the cost of living pressures that Malaysians are grappling with, higher income levels will be able to weather such cost pressures more efficiently.”
What has kept Malaysia’s ratio anchored has been the rise in the number of foreign workers in the country.
And 72.8% of workers in the labour market are low- or semi-skilled.
Efforts to raise the skills level of Malaysians have been limited and investments into automation is still at a low level.
Skills are important as data by the Statistics Department shows that skilled workers are paid on average RM4,573 per month. Semi-skilled workers earn an average of RM1,947 and low or unskilled employees earn a monthly salary of RM1,531.
A focus of skills training or TVET would help drive wage levels up as that will also reduce the dependency of migrant workers in that category.
While skills training will be essential in lifting wages, the disparity between regions of the country will also come under focus in the Shared Prosperity Vision.
In 2018, 40% of the country’s GDP comes from Kuala Lumpur and Selangor, and Kelantan, Kedah, Pahang, Sarawak and Sabah only account for 25% of the country’s GDP.
“The benefits of economic development and growth dividend are not being felt evenly across all households of different income due to inequitable wealth distribution,” says Lee.
“Going by GDP per capita measurement, in 2018, GDP per capita in the poor states were markedly below national average level of RM44,700: Kelantan (69% below average at RM13,700); Kedah (52% below average at RM21,400); Perlis (45% below average at RM24,400) and Sabah (42% below average at RM25,900).”
Diversification
The low inflation rate helps in mitigating cost pressures but the new policy direction that will see income levels rise faster in different regions and among the semi- and lowskilled workers will be important in not only dealing with the cost of living issues but also in addressing the gaps in incomes between the different regions and races.
The Shared Prosperity Vision will also look at increasing the planting of food crop as a means to narrow the income gap between rural and urban areas.
“As a start, we need to deepen our research and development into mixed farming so that the agriculture sector does not entirely rely on rubber and palm oil produce, but instead will devote a portion of lands into production of cash crops such as vegetables, fruits and flowers that are very much in demand in the global market,” says Economic Affairs Minister Datuk Seri Azmin Ali in a news report yesterday.
In the report, Azmin says Malaysia’s food import bill in 2018 stood at more than Rm50bil and is growing. He says many of the crops imported now can be replaced with local production.
“To achieve this requires economies of scale in production. Hence, our new approach will amalgamate smaller farms to be managed professionally, efficiently and thus generating higher income for farmers,” he says in the report.
The plan will also seek to minimise the disparities between what farmers and fishermen can earn to ensure they get a larger share of their produce and catch than what is the case today.
A study by MYCC shows that the price of fish increased by six-fold between what the fishermen are paid and what consumers ultimately pay when purchasing fish at the market.
Lee says the challenge of new economic development is clear where rising income and growth inequality, a growing sense of economic insecurity, and a dramatic decline in upward mobility are at the heart of the growing challenges facing Malaysia.
“The government must advance a broader economic dividend agenda to elevate shared prosperity through improving economic mobility, enhanced accessibility to public services, narrowing digital divide between rural and urban, accelerating rural economic development, making every Malaysian and community more versatile and resilient.
Shared prosperity
He says there are many pathways to shared prosperity, and they often complement one another.
“Policy makers need to be aware of possible complementarities or trade-offs between reducing income inequality while boosting economic growth,” he says.
Getting policymakers to prioritise the policy drivers require a long-term vision for a fair and inclusive society for all Malaysians, the willingness to embrace economic and social changes with an open mindset and have strong political will to effect the changes and policy drivers, he says.
“All of these policies could be enacted at federal, local and state levels if there is political will,” says Lee.
In this regard, he feels that the roadmap to Shared Prosperity Vision must outline an Economic Prosperity and Income Elevation agenda, covering the following key policy areas:
First, invest in education and skills training. In upping the quality of education, he says improving the quality and reach of education are important elements to reduce income disparity.
“Investments in education, beginning in early childhood, lifelong learning programs and continuous reskilling and upskilling programmes can increase economic and employment mobility, contribute to increased productivity and decrease inequality. Investing in labour skills and technology are needed to build a dynamic workforce,” he says.
Secondly, he suggests that economic prosperity can be broad-based if growth generates jobs and economic opportunities for all segments of the population.
The Shared Prosperity Vision calls for the improvement in the well-being of the bumiputra community which have been left behind by development as 71.3% of the B40 are from that community.
“The upgrading of industries towards capital-intensive, technology-driven and knowledge-based industries would create high value added and better wages jobs. Innovation and modernising the rural economy through skills building, the adoption of technology, diversification and specialisation,” says lee.
“The ‘areas of opportunity’ – tourism, farming, agro-food, renewable energy and local foods are sectors well positioned to boost local economic opportunities in rural areas.”
Thirdly, Lee felt that enhanced the accessibility to core public services such as electricity, roads, education and digitalisation as well as telecommunication in rural economy and urban poor will need to be priotised.
“Provide affordable and better amnesty public and private housing community. The decentralisation of federalism to empower states in implementing socio-economic development policies. National budget expenditure programmes should be allocated more to less developed and poor states, irrespective of political divides,” he says.
Lee also says that active labour market policies, curtailment of gender discrimination and improvements in the labour market outcomes for women will be important.
“As social benefits can reduce the incentives for work and employment, active labour market policies through better matching jobs with skills and enhancing job search support and monitoring can have positive effects on labour income.
“As at end-june 2019, of total labour force of 15.60 million, 55.8% or 6.03 million women participated in the labour force compared to 80.8% or 9.49 million men participation,” he says.
“Hence, appropriate policies and initiatives must be implemented to dismantle barriers and increase women participation in economic, labour market and social community.”
Tax reforms
Lee also says the government will need to undertake tax reforms that create incentives to work, save and invest for economic growth and fairness.
“The tax policy mix should move away from taxing on labour income to consumption-based tax. This helps to reward productivity and reduce income inequality,” he says.
He also adds that there is a need for a healthy and stable “social contract” that would commit to investments in safety nets that protect the poor and vulnerable against deprivation and shocks.
“Public redistributive policies must adopt a needs-based approach irrespective of ethnicities, classes, communities and geographical boundaries,” he says.